Friday, November 22, 2013

Are sugar stocks turning bitter already?

Blog readers may be aware that my opinion of the sugar sector (expressed here and here) is not good. The reason is simple – too much government control over policy and price. So why am I writing about the sector? To sound a warning note.

For the past couple of months, there have been some indication that sugar stocks have bottomed out after a prolonged bear period. That has attracted many small investors who are forever looking at ‘cheap’ stocks on which they can turn a quick profit.

The recovery in sugar stocks was mainly on the hope of some price rationalisation by the government to help out the struggling(?) sugar companies. The government did announce revised prices of procuring sugar cane from farmers, but it was much higher than what the sugar companies are willing to pay and much lower than what farmers are demanding.

The farmers are unhappy. So are the sugar producers. If you entered at lower levels, take your profits and be happy. Things may get worse.

Bajaj Hindusthan

The stock price recently spurted higher on strong volumes, but failed to reach its falling 200 day EMA. All four technical indicators indicated negative divergences by failing to move up higher. Bears are likely to resume their dominance.

Balrampur Chini

If you are interested in buying a sugar stock, Balrampur Chini may be your best bet. The stock is in an up trend since Aug ‘13, forming a bullish pattern of higher tops and higher bottoms. The stock price is pulling back towards its 200 day EMA, after crossing above it on strong volumes. Buy only if the stock bounces up from its 200 day EMA.

Dalmia Sugar

After a prolonged consolidation in a bullish ‘rounding bottom’ pattern, Dalmia Sugar traded above its 200 day EMA during Oct ‘13. It has since formed a bearish ‘rounding top’ pattern to drop below its long-term moving average. Technical indicators are recovering from oversold conditions. The stock may try to resume its up move.

Dhampur Sugar

The stock price of Dhampur Sugar formed a ‘double-bottom’ reversal pattern and jumped up to test its falling 200 day EMA on strong volumes; but dropped down after facing strong resistance. ROC and RSI are looking overbought. Bears may use the opportunity to sell.

Dwarikesh Sugar

Dwarikesh Sugar stock made a couple of efforts to cross above its 200 day EMA – but failed to close above its long-term moving average. Daily technical indicators are showing negative divergences by touching lower tops. However, the stock is in an up trend, and can be bought with a strict stop-loss at its 50 day EMA.

EID Parry

EID Parry stock is in an up trend, but struggling to cross its 200 day EMA. It is facing strong resistance at 155. Daily technical indicators are showing negative divergences by touching lower tops after reaching their Oct ‘13 highs. Buy only on a convincing move above 155.

Rajshree Sugar

The stock price of Rajshree Sugar is trying to correct oversold conditions, but is trading below all three EMAs. Avoid.

Shree Renuka Sugar

Once a darling of the stock market, Renuka Sugar is struggling to get out of a bear stranglehold. It is consolidating within a symmetrical triangle pattern, from which the likely break out is upwards. Since triangles are unreliable, wait for the break out.

Simbhaoli Sugar

Simbhaoli Sugar is sliding deeper into a bear market, with no sign of a bottom formation. Avoid.

Ugar Sugar

The stock price of Ugar Sugar has attempted to cross above its falling 200 day EMA on five occasions in the past 12 months. Bears have stifled bullish hopes each time. The stock is trying to find a bottom at 10. Avoid.

(Note: I don’t track the sugar sector, and have very little idea of the fundamental strengths or weaknesses of any of the stocks mentioned above.)